Tax on savings......Avoiding paying.
Discussion
My daughter who is still at school has a part time job. She has just received a letter from the IR telling her to notify her bank or building society that she now has to pay tax on her savings.
Apart from ISAs are there any other tax free savings accounts that she can have or even run along side an ISA to minimise the tax she pays?
Apart from ISAs are there any other tax free savings accounts that she can have or even run along side an ISA to minimise the tax she pays?
why does she have to pay pax on her savings?
You only pay tax when your a student when you earn over £5k and a few hundred odd.
I dont pay tax on what ive got in ING, as I filled out IR R85 form, to say im a student in full time education, jobs a good un.
www.hmrc.gov.uk/forms/r85.pdf
You only pay tax when your a student when you earn over £5k and a few hundred odd.
I dont pay tax on what ive got in ING, as I filled out IR R85 form, to say im a student in full time education, jobs a good un.
www.hmrc.gov.uk/forms/r85.pdf
princeperch said:
why does she have to pay pax on her savings?
You only pay tax when your a student when you earn over £5k and a few hundred odd.
I dont pay tax on what ive got in ING, as I filled out IR R85 form, to say im a student in full time education, jobs a good un.
www.hmrc.gov.uk/forms/r85.pdf
Not sure why, it's just in the letter she received. Maybe she should just fill out her tax form at the end of the year and see if she goes over the personal allowance limit.
She's 18 so old enough for an ISA although I don't think she will be anywhere near the limit on what her job pays.
If she earns less than the personal allowance of £5K+ I think she needs to fill in an R185 or whatever and get the interest paid gross. Don't know about NI though.
Just because she's had a form doesn't mean she's liable for tax, it just means HM Govt has woken up to a potential new tax-slave on the block.
Just because she's had a form doesn't mean she's liable for tax, it just means HM Govt has woken up to a potential new tax-slave on the block.
She filled the R85 form in years ago so she isn't paying tax on her savings. She has paid tax on her earnings as her employer didn't have any records for her as it is her first job. That seems to be sorted although she is waiting for a tax rebate at the moment, not sure how long that takes.
falcemob said:
She filled the R85 form in years ago so she isn't paying tax on her savings. She has paid tax on her earnings as her employer didn't have any records for her as it is her first job. That seems to be sorted although she is waiting for a tax rebate at the moment, not sure how long that takes.
I was in a simailar position a few Januarys ago, their response was 'fill in your P60 in April'. To give them their due, I filled in the form and got all I was entitled to back.
EVERBODY pays tax if their income in the tax year exceeds the Tax Allowance level (£4,895 for 2005/06). It is not an age related allowance - it applies to everyone. If your daughter's total income for the year up to 5 April 2006 stays below £4,895 she will not have to pay tax and can still receive thei interest on her bank account(s) gross.
If her income is going to exceed the £4,895 by 5 April 2006, then she MUST instruct the bank to start taking tax out of the interest they pay her. Tax is deducted by banks at 20% (which is not a "normal" rate of tax - the Income Tax rates are 10%, 22% and 40%). If she ends up only earning enough income in the year to pay tax at the 10% rate, she can claim back from the Revenue the tax over deducted by the banks.
NI is not an issue when it comes to interest received. Interest is classified as Investment Income. NI only applies to earned income i.e. income from an employment, directorship or self employment/partnership.
If her income is going to exceed the £4,895 by 5 April 2006, then she MUST instruct the bank to start taking tax out of the interest they pay her. Tax is deducted by banks at 20% (which is not a "normal" rate of tax - the Income Tax rates are 10%, 22% and 40%). If she ends up only earning enough income in the year to pay tax at the 10% rate, she can claim back from the Revenue the tax over deducted by the banks.
NI is not an issue when it comes to interest received. Interest is classified as Investment Income. NI only applies to earned income i.e. income from an employment, directorship or self employment/partnership.
Her income for the year ended April 2005 only consisted of interest from savings which was not much. Year ending April 2006 will be savings and probably about £1000 from her part time job which is nowhere near the £4800 threshold so she will not be liable for tax. Year ending April 2007 will be nearer the mark although she may stop working when she goes to uni in September.
The bank have been taking tax since she was 16 as I didn't realise she needed to fill in a new R85 after her 16th birthday and we didn't update her bank book and it went unnoticed.
Thanks for the input though.
The bank have been taking tax since she was 16 as I didn't realise she needed to fill in a new R85 after her 16th birthday and we didn't update her bank book and it went unnoticed.
Thanks for the input though.
falcemob said:
The bank have been taking tax since she was 16 as I didn't realise she needed to fill in a new R85 after her 16th birthday and we didn't update her bank book and it went unnoticed.
Thanks for the input though.
I havn't filled in a new R85 and I turned 16 back in August, I might be owed some more money!m1spw said:
That shouldn't be a problem, just check with your bank and if you need to fill a new one out they will sort the tax out for for this year up to April 5th.
Eric Mc said:
Age has nothing to do with it.
I was told that she should have filled a new form out at age 16, if that's incorrect why did they start deducting tax when she turned 16? She originally filled an R85 out when she opened the account in 1999.
It is just an assumption that anyone under the age of 16 will have insufficient income during the tax year to take them over the tax allowance levels. The assumption is that, after 16, there is a chance that the individual might start earning some income and might go over the threshold. Therefore, the banks are just being cautious.
In reality, the tax allowances remain the same for everyone from the day they are born right through to the ages of 65 and 75 when additional allowances are given purely because you are "old".
In reality, the tax allowances remain the same for everyone from the day they are born right through to the ages of 65 and 75 when additional allowances are given purely because you are "old".
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